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Our position: A National System is Needed to Rein in Errant Mortgage Brokers

By: Editorial

It will take a wide array of public and private initiatives, together with time and the corrective forces of the market, for the U.S. economy to recover from the extensive damage triggered by the subprime-mortgage collapse. But even as lawmakers and regulators consider the best ways of digging out from this disaster, they also need to focus on preventing another one like it in the future.

U.S. Sen. Mel Martinez of Florida, a former federal housing secretary, has sensibly responded to this need by proposing a uniform nationwide system to license and monitor mortgage brokers and lenders. The system would help stop unqualified or unscrupulous brokers and lenders from trapping borrowers in mortgages they can't afford.

It's especially fitting for a senator from Florida to take a leading role on this issue. Last year, Florida had the second-highest total of foreclosure filings in the country, according to Mr. Martinez's office. Six of the nation's 25 metropolitan areas with the highest foreclosure rates in 2007 were in Florida, including Orlando at No. 20.

Most mortgage brokers and lenders have operated ethically and provided loans their clients could repay. But some have been tempted by big commissions or fees to mislead borrowers.

Such predatory lending is not by any means the only cause behind the current mortgage meltdown, but it's a significant factor -- enough to attract the attention of law enforcers, including state attorneys general and the FBI. Borrowers who exploited loose lending standards, and investment banks that bundled and resold bad loans, also are among contributors to the crisis.

Under Mr. Martinez's proposal, brokers and lenders would need to consent to background checks to seek a state license. They would not qualify if they had a felony conviction in the past seven years, had a similar license revoked in the past five years, did not meet continuing education requirements, or failed a written exam.

Currently, states maintain their own systems for licensing mortgage brokers and lenders. Standards vary widely, and often are lenient. In California, for example, anyone with a real-estate license can also be a mortgage broker.

And states don't typically share information. A broker whose license has been suspended for predatory lending in one state might relocate and go back to his old tricks in another state. While some states have been working together on a common licensing system, Mr. Martinez's proposal would establish a national network and fill in any gaps.

Mr. Martinez, a Republican, has teamed up with Sen. Dianne Feinstein of California, a Democrat, on his proposal. It's a good step, worthy of additional bipartisan support, toward protecting home buyers and the broader economy from a future mortgage crisis.